Europe’s debt deja vu
This past weekend’s (already delayed) summit to prevent the European debt crisis from spiraling out of control and plunging Europe into recession proved divisive and inconclusive. French and German officials scolded Italian Prime Minister Silvio Berlusconi for not doing enough to reduce his country’s debt, while French President Nicolas Sarkozy effectively told British Prime Minister ...
This past weekend’s (already delayed) summit to prevent the European debt crisis from spiraling out of control and plunging Europe into recession proved divisive and inconclusive. French and German officials scolded Italian Prime Minister Silvio Berlusconi for not doing enough to reduce his country’s debt, while French President Nicolas Sarkozy effectively told British Prime Minister David Cameron to either adopt the euro (a rather shaky proposition at the moment) or "shut up" about Europe’s economic woes.
Given all that, EU leaders seem surprisingly optimistic about their ability to strike a deal by their next summit on Wednesday — an agreement that will likely involve measures to cut Greece’s debt as the country continues to flounder, recapitalize European banks as they struggle with exposure to Greek debt, and beef up the eurozone bailout fund as Spain and Italy waver.
"Progress has been made," Sarkozy proclaimed on Saturday. "Between now and Wednesday a solution must be found, a structural solution, an ambitious solution, a definitive solution." Polish Prime Minister Donald Tusk, who currently holds the European Union’s rotating presidency, added, "We all have a sense that the crisis in the euro zone is reaching very worrisome levels. We have to be happy that the decision-making progress has gained some momentum, although we can’t say we have reached the finish line today."
Markets are responding positively to these glimmers of hope. But the words — however heartening — are hard to believe. After all, we’ve heard these back-against-the-wall, do-or-die pledges of a comprehensive and decisive solution to the debt crisis before. Let’s take a look at some of the other statements that have come out of what seems like a perpetual procession of emergency Brussels summits:
Date: May 9, 2010
Action: Shortly after bailing out Greece, European officials create a €440 billion European Financial Stability Facility (ESFS) that can lend money to troubled eurozone countries by selling bonds (this is the fund that European officials now say needs more firepower).
Assurances: "The Council and the Member States have decided today on a comprehensive package of measures to preserve financial stability in Europe," European finance ministers crow in a statement. A month later, the European Investment Bank’s Philippe Maystadt says the creation of the fund "constitutes evidence that, when the stakes are high, member states — together with the European Commission and the E.I.B. — can sit down together and work for the common interest, within a tight deadline."
Date: December 16, 2010
Action: European leaders agree to create a permanent European bailout fund called the European Stability Mechanism (ESM) to replace the ESFS in 2013.
Assurances: "We are ready to do everything that is necessary to ensure the financial stability of the euro area," European Commission President José Manuel Barroso declares. European officials promise to unveil a "comprehensive package" to resolve the eurozone debt crisis once and for all in March.
Date: March 25, 2011
Action: A political crisis in Portugal prevents European officials from unveiling a package that meets market expectations. Officials delay increasing the European rescue fund but do strike deals on how to fund the ESM and better coordinate economic policy.
Assurances: "We adopted today a comprehensive package of measures which should allow us to turn the corner of the financial crisis and continue our path towards sustainable growth," the European Council says in a statement.
Date: July 21, 2011
Action: European leaders agree to reduce Greece’s debt burden and grant new powers to the region’s rescue fund.
Assurances: "We improved Greek debt sustainability, we took measures to stop the risk of contagion and finally we committed to improve the eurozone’s crisis management" European Council President Herman Van Rompuy announces after the meeting. "When European leaders say that we will do ‘everything what is required’ to save the eurozone, it is very simple: We mean it," he adds.
Given the political and logistical obstacles, we wonder if we’ll be adding October 26, 2011 to the list of failed attempts to arrive at a workable solution.